Data on Tap: PepsiCo Knows What You Like to Drink
How AI can help soda giant, PepsiCo, adapt to changing trends towards health and wellness.
Changing Consumer Trends in Food and Beverage Put PepsiCo at Risk
In the last decade, sugary drinks have sharply dropped as more health-conscious consumers are shifting their preferences towards alternatives like tea, seltzer and bottled water.[i] This puts large food and beverage organizations like PepsiCo, whose trademark brands include Pepsi and Mountain Dew, under immense scrutiny. The traditionally soda-oriented company needs to find a way to innovate its beverage portfolio in order to combat category declines. However, without strong expertise in health and wellness trends, PepsiCo is relying on artificial intelligence in order to stay relevant.[ii]
The company recently launched a new trend predictor “360 Always On Trend Engine” to scope out what consumers are talking about online in order to aid in product innovation.[iii] This machine “tracks online conversations about more than 1,000 ingredients, including turmeric and charcoal, as well as 2,200 other brands and products” in hopes of helping PepsiCo remain on the forefront of the beverage category.[iv] This machine can help separate what is a fad from what is a long term trend to inform innovators on what products should be introduced to PepsiCo’s portfolio. In addition, PepsiCo has introduced a language bot that helps “increase the accuracy of social media reporting”.[v] Many times sentiment is captured wrongly because phrases like “Pepsi is bad ass!” and “Pepsi tastes bad” get bucketed in the same category while meaning vastly different things.[vi] Language bots will more clearly articulate consumer feelings to inform the company.
How AI Can Help Reverse PepsiCo’s Decline
With the help of AI, the company will be able to identify, in the short term, what people are looking for when selecting beverages and what are up and coming trends that will shape consumer behavior.[vii] But more importantly, PepsiCo will be able to use this information in the long term in order to cater to evolving demands. Through the use of AI predictions, the company can release line extensions on current products using ingredients that consumers are excited about, create brand new innovations, or acquire niche companies that were able to jump on the trend faster than PepsiCo was able to.
Further Considerations
Despite the powerful capabilities of AI in aiding PepsiCo towards providing products that consumers want, there are a few limitations. One is that PepsiCo might not have enough clout in the health and wellness sphere to launch such cutting-edge nutritional snacks. The company is still seen as a traditional soft drinks and salty snacks business. Therefore, even if predictive analytics point to ingredients such as charcoal or turmeric being the next big trend, it is hard to know if consumers would be willing to buy those ingredients through PepsiCo products.[viii] Usually small niche companies dominate trendsetting ingredients and products in the food and beverage category.[ix] PepsiCo will need to garner significant influence as a food and beverage trendsetter in order for these new predictive innovations to be successful.
Another consideration is that by having bots follow social media posts and internet responses about current products, there is a risk of reading the general consumer wrong. Many times, negative sentiment overrules online forums and companies act too quickly in response. This happened to PepsiCo in 2016 when the company took Diet Pepsi with aspartame off the shelves in exchange for a Diet Pepsi formula with sucralose.[x] The internet had been buzzing with anti-aspartame bloggers pegging the ingredient as unhealthy.[xi] However, when the sucralose formula was launched, Diet Pepsi’s loyal consumers stopped buying the product and sales dropped -8% while Diet Coke stayed with aspartame and only had -2.5% drop.[xii] After only a year, the company switched back to the original aspartame formula.
The use of AI in following and interpreting online discussions surrounding food and beverages and PepsiCo the company to innovate on existing products as well as launch new products will be greatly advantageous for the company in shifting more towards health and wellness. However, this can only be done if the company if able to gain more brand awareness and credibility in the healthy living sphere as well as separate contradictions between what the internet says and what the loyal consumers truly want.
Questions
Do you think the results that AI suggests for PepsiCo will be too far off from PepsiCo’s main line of business? Will the company be able to satisfy both the traditional consumer base as well as the new health conscious individual?
Will AI shape PepsiCo to be too much of a trend follower? Or can it be a trendsetter with AI as well?
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[i] Nytimes.com. (2018). The Decline of ‘Big Soda’. [online] Available at: https://www.nytimes.com/2015/10/04/upshot/soda-industry-struggles-as-consumer-tastes-change.html [Accessed 13 Nov. 2018].
[ii] Handley, L. (2018). Small brands are attacking PepsiCo and others like ‘piranhas.’ Here’s what it’s doing about it. [online] CNBC. Available at: https://www.cnbc.com/2018/06/22/small-brands-are-attacking-pepsico-and-others-like-a-shoal-of-piranhas.html [Accessed 13 Nov. 2018].
[iii] Handley, L. (2018). Small brands are attacking PepsiCo and others like ‘piranhas.’ Here’s what it’s doing about it. [online] CNBC. Available at: https://www.cnbc.com/2018/06/22/small-brands-are-attacking-pepsico-and-others-like-a-shoal-of-piranhas.html [Accessed 13 Nov. 2018].
[iv] Handley, L. (2018). Small brands are attacking PepsiCo and others like ‘piranhas.’ Here’s what it’s doing about it. [online] CNBC. Available at: https://www.cnbc.com/2018/06/22/small-brands-are-attacking-pepsico-and-others-like-a-shoal-of-piranhas.html [Accessed 13 Nov. 2018].
[v] Sodash.com. (2018). [online] Available at: http://www.sodash.com/wp-content/uploads/sites/4/2015/12/pepsico-Case-study-SoDash-Updated.pdf [Accessed 13 Nov. 2018].
[vi] Sodash.com. (2018). [online] Available at: http://www.sodash.com/wp-content/uploads/sites/4/2015/12/pepsico-Case-study-SoDash-Updated.pdf [Accessed 13 Nov. 2018].
[vii] Handley, L. (2018). Small brands are attacking PepsiCo and others like ‘piranhas.’ Here’s what it’s doing about it. [online] CNBC. Available at: https://www.cnbc.com/2018/06/22/small-brands-are-attacking-pepsico-and-others-like-a-shoal-of-piranhas.html [Accessed 13 Nov. 2018].
[viii] Handley, L. (2018). Small brands are attacking PepsiCo and others like ‘piranhas.’ Here’s what it’s doing about it. [online] CNBC. Available at: https://www.cnbc.com/2018/06/22/small-brands-are-attacking-pepsico-and-others-like-a-shoal-of-piranhas.html [Accessed 13 Nov. 2018].
[ix] Handley, L. (2018). Small brands are attacking PepsiCo and others like ‘piranhas.’ Here’s what it’s doing about it. [online] CNBC. Available at: https://www.cnbc.com/2018/06/22/small-brands-are-attacking-pepsico-and-others-like-a-shoal-of-piranhas.html [Accessed 13 Nov. 2018].
[x] Fortune. (2018). http://fortune.com. [online] Available at: http://fortune.com/2016/07/07/pepsi-ceo-diet-pepsi-aspartame/ [Accessed 13 Nov. 2018].
[xi] Fortune. (2018). http://fortune.com. [online] Available at: http://fortune.com/2016/07/07/pepsi-ceo-diet-pepsi-aspartame/ [Accessed 13 Nov. 2018].
[xii] https://www.fooddive.com/news/diet-pepsi-is-bringing-aspartame-back-again/517618/
PepsiCo produces many drinks and foods that the typical consumer would not know are made by PepsiCo. Therefore, I don’t think it would be too far off from its main line of business as long as it isn’t marketed under a current brand or (as we learned in marketing) the campaign isn’t too edge/viral. But, I do think the company will need to maintain some separation between a current brand and new “healthy” brands. As for being a trend follower / trendsetter, I do think there are flavors out there that people aren’t even talking about yet. These tastes would not be picked up by AI. However, I’m more concerned that AI would identify taste combinations that just wouldn’t work for certain products. Product development needs to be super careful about that.
Such a cool application for AI!
As a bit of a health freak, I think it’s great that Pepsi is looking to evolve to address demand for healthier drinks, and this is such an interesting way of thinking about how to do that. I see two main ways that they can apply this: the first is they can look for drink trends and find nascent brands that embody them and acquire them. The second is that they can use the trending ingredients to come up with new original drinks, or to try and replace some of their existing ingredients with healthier alternatives. In both case, there is a chance that they would just be following the trends, but they have such power in the industry, that they would likely overtake some of the smaller niche brands even if their healthy drink was second to the market.